Trade versus Investment Liberalization

Despite several theoretical contributions and considerable informal empirical evidence" to the contrary, a notion that trade and investment are substitutes persists in trade policy" analysis. This paper considers the liberalization of commodity trade versus liberalization" allowing direct investment versus the two together. For a relatively skilled-labor-scarce" economy, I show that trade and investment liberalization are quite different together are in a sense complements. The intuition may be that direct investment provides such" a country with crucial inputs (knowledge-intensive producer services) without which the" country cannot effectively exploit its abundant factors in certain industries."

Support

The research activities of the NBER are funded by grants from federal research agencies, by private foundations, and by generous donations from our corporate associates and from private individuals. The NBER is a non-profit, 501(c)(3) organization. For information on supporting the NBER, please contact: